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August Market Turmoil Proves ‘Bad News Is Good News’ Trading Philosophy Has Limits

Perverse dynamics only persist until their inherent contradiction is exposed.

Perverse dynamics only persist until their inherent contradiction is exposed.
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3 comments on “August Market Turmoil Proves ‘Bad News Is Good News’ Trading Philosophy Has Limits

  1. Amusing stuff from last year:

    Liquidity Risk after the Crisis

    ” … Both are real, rather than nominal rates, and the spread is a simple measure of the real equity excess return or risk premium, in effect treating equity as a bond that has both credit and cash-flow risk. The dividend-real yield spread is very high by historical standards, higher even than during the bear market of the late 1970s (Figure 4).17″

    “Low interest rates may also move discontinuously, amplifying the extensive revaluations that can be expected to accompany a rise in rates.

    Low interest rates and volatility, sustained over a long period time, are apt to contribute to a further tightening of financial conditions in response to adverse shocks. The paradox of volatility suggests that hard-to-detect imbalances are growing that are apt to correct themselves disruptively, perhaps as pockets of leveraged investing turn sour. Microeconomic anomalies and evidence of market fragility increase the likelihood of disruptive market events with surprising loci and timing, exacerbating the effects of rising rates and volatility.”

    https://www.cato.org/cato-journal/winter-2018/liquidity-risk-after-crisis#fig004

  2. “Bad news is good news” is what made me begin to observe the markets some 20 odd years ago. Not a typical person to take up such a hobby. Along comes H. on Seeking Alpha bingo somebody who gets it (my skepticism). And then lo and behold he also provides a platform to learn. You still have to look a lot of crap up if you are like me. I assume he has a dumb it down only so much limit.

    Regardless of the fact he does not offer financial advice; does not seek any credit or blame. I am correlating two timely beneficial portfolio adjustments in 2019 to reading his articles and looking crap up.

  3. The inconsistency is that the conditions that drive down rates are the conditions that also reduce corporate profits….

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